Assigning Those Rents In Texas? | June 28, 2011

It’s that time of the year, here in Texas, when some of the sausage being made in the Texas Legislature finally ends up on the consumer’s tables. One of the links that will certainly draw some hungry eyes is the new Chapter 64 of the Texas Property Code which will significantly alter how the “assignment of rents” provision in real estate loan documents is interpreted. While this may seem trivial to most readers, you have to understand that Texas has always provided lenders with the option to have an “absolute” assignment of rents which means that upon the execution of the loan agreement , the rents secured under the agreement become the property of the lender with a “license back” to the borrower to permit the borrower to collect the rents until the borrower defaults under the loan. However, this new law brings Texas in line with the rest of the country by defining the interest in the rents (no matter what your loan agreement says) as a security interest which is enforceable only upon the default of the borrower. The collection by the lender of the rents is then strictly defined by the statute. This has significant impact on lenders, borrowers and tenants because it creates a whole new set of procedures and requirements of all the parties once a loan goes into default. Attached is an article prepared by my partner, Stephen Roberts, (and edited by my partner, Beth Tiggelaar) detailing the specifics of the new statute. TX-legislature-may-have-just-rewritten-your-real-estate-agreements It is a very well written summary of the statute and it’s implications on real estate loans in Texas.

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Steve, During the 80’s it became my practice to require Subordination, Non-disturbance and Attornment agreements with the lenders to the properties with which my tenant clients were signing leases. Does this new law affect that practice one way or the other?